Bring in the quants - Blackrock AM
BlackRock's focusing on a quant driven strategy, top hedge funds are criticizing the rise of quant funds, even a major television character acknowledges the threat of quants to his firm. What do you think, quants will seize the day in the end? I know this topic's been recycled many times, but every new development is worth discussing and debating upon.
IMO, I feel that quants are ABLE to replace stockpickers primarily because firms are looking for more versatile employees. Quants can play stockpickers AND code AND do heavy statistical analyses, while traditional stockpickers cannot switch sides. Firms enjoy having this kind of flexibility in their talent pool.
ft.com/content/b0056320-13e3-11e7-b0c1-37e417ee6c76">Full article here
No. Not entirely.
The quants are going to get the low-hanging fruit.
There will still be stuff that will be hard for machines to figure out. That humans need to do. The realization that "Oh, Texas Pacific Land is worth double its current price if we see it not as a few hundred thousand acres in the desert, but as a potential wind farm"
That is still going to require humans to do.
But the easy stuff is going to be done by computer. And to be sure, it's going to improve market efficiency and bring about more economic growth, which will make the pie bigger for everyone.
If it makes you feel any better, this is happening in many parts of finance-- S&T and IBD are being affected too. But oftentimes, the work that machines are replacing is a bunch of monotonous drudgery, which frees humans up to get paid for their insight rather than their ability to read through hundreds of pages of 10Ks.
There's a downside to this-- but also an upside. In 20 years we may all be earning what we're earning now-- or more-- but just have four hour workweeks.
Thank you for theinsights Illini. Btw your example of Texas land was a great one. But if that were the case, couldn't such analyses be made by quant traders who double up as coders AND stockpickers? I've seen some smaller shops do some amazing work with such folks who are versatile to do both.
After all, I've seen most hedgefunds relying on the same BS ER recommendations and similarly inadequate resources (I'm counting parking lot satellite images and other such "tools" here too) to base their decisions upon, without focusing on the kind of differentiators that you had mentioned. So ML would definitely be a differentiator now, and maybe even out across all firms in maybe 10 years.
As for your last sentence, I've seen some day traders, mainly former quants, who do exactly what you've mentioned. Guess that culture going mainstream will take some time - unless another Milken creates a new financial instrument to gamble upon.
More mathematical analysis and less hand-wavy intuition is a good thing for any industry in my view. Smooth talking executives who were in a frat in college don't want weird math nerds telling them what to do though.
but counting parking lots from satellite images is exactly a ML task
TPL, the best failed company there is!
We will never have 4 hour work weeks unfortunately. That was the prediction 100 years ago as well, but frankly it never came true.
I'd say its because money is a a way to value time more than it is anything else. Theres little chance you'd pay an average person a living wage for four hours of work per week, you'd just do the work yourself and be twice as rich as an average person. Alternatively, there would be millions of people with those jobs which would simply drive the purchasing power of the dollar down. The value of the money you have only gets its value relative to what everyone else makes.
Realistically if we ever wanted a society like this, we would need a maximum wage / net worth, its simply the only way. Money doesn't pool at the bottom, it pools at the top.
I dunno about that. There's clearly a curve to the utility of wealth. Talk to most bankers, and they wouldn't be willing to double their hours for double the pay. I think most people would be willing to go from 4 to 12 hours to triple their pay; I don't think they'd be willing to go from 4 to 40 to get a 10x increase. Maybe they'd stop at 28 hours or something and give themselves half of thursday and friday off for $700K/year vs. $1mm.
Furthermore, insight and creativity isn't necessarily something that comes from more work. It comes from having different approaches to problems. A guy working 80 hours a week isn't necessarily going to have more or better ideas than three people working a combined total of 12 hours a week, though he might have more ideas than one person working 4 hours per week.
People have different experiences and different approaches, and sometimes the right questions prompt a better idea. And I honestly don't think money is going to pool at the top. If anything, money is going to flow to people with crazily different backgrounds and approaches from your typical wall street analyst. Because (1) there's going to be a more scientific approach to management than just hiring HBS or Princeton or Wharton and being able to market them to dumb money and (2) they are going to bring different and uncorrelated insights to the table, and there may be less reliance on their ability to execute-- which machines will shoulder more responsibility for.
Diversity for the sake of diversity is a very bad way to go-- but having a diversity of approaches, backgrounds, and ideas in the room becomes more valuable and more important as the execution gets abstracted and the ability to signal without needing branding improves. This may ultimately point to more opportunities for people with fewer means-- or at least for people with atypical backgrounds that aren't already in the room.
I wouldn't necessarily be so pessimistic.
I have always wondered how quants could replace stock picking in more speculative industries like biotech? This is a genuine question, because I am not fully familiar with how quant trading works - but how can an algorithm assess the value of an untested drug in clinical trials?
I would imagine you need experts to be able to analyze the drug's non-quantitative attributes and the politics associated with getting it approved by the FDA before coming up with a call to buy on it. This would probably hold true for other sectors as well, right?
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